New year, new money goals: small steps you can take to improve your personal finances

The plan: Pay down your largest or smallest amount of debt first

There are several methods for paying down debt, and two of the most common are the avalanche method and snowball method. Luckily, you don’t have to be an avid skier to use them.

With the avalanche method, you pay your most expensive balance first. Start by listing out all your debts from the highest interest rate to the lowest, and determine the total amount of money you can put toward your debt each month. Make the minimum monthly payment on each card, mortgage or other debt, then put your remaining cash toward the highest-interest debt.

This strategy helps reduce the amount of money you’ll spend toward interest, since you’re removing the highest percentage first. The key is to stick with paying down debt on each subsequent card. Once you’ve paid off your first debt, keep your payments going to the next one.

If that strategy seems difficult, consider the snowball method, instead. This strategy goes the opposite route: you pay off your smallest debts first, then work your way up to the larger ones. You’ll still make minimum payments on all cards and bills, you’ll just focus on the smallest one and put your additional cash toward it, then move on to the second-smallest, and so on.

The benefit here is seeing multiple wins unfolding before your eyes. If you achieve paying off any kind of debt, even a small one, that’s a great feeling. Having those accomplishments play out can be highly motivating to get rid of the rest of your debts.

The plan: Review your expenses

One of the best ways to save some extra money is to see where your money is currently going. A spreadsheet with money coming in and going out opens your eyes to areas where you may be overindulging.

Once you’ve identified what you’re putting money toward, create a spending plan. List out your necessary expenses: rent or mortgage, utilities, groceries, gas, insurance and savings accounts. From there, create categories for other types of non-essential expenses, like movies or concerts, travel or games. When you see all of that laid out, it’s a lot easier to stick with it. Plus, a plan with what you can spend is less restrictive than putting…well, hard restrictions on what you can’t buy.

Luckily, you don’t have to do this alone. There are several financial tools that can get you started and monitor your spending from month to month, offering advice along the way.

The plan: Start investing wisely

Investing is one of the best ways to grow your money over time. And no, you don’t need to try and find the next GameStop, AMC or other stock that shoots to the moon. A safer bet is to invest in an index or mutual fund, which gives you exposure to a wide variety of companies and markets. If you do invest in individual stocks, ones that offer dividends will provide you with extra money on a monthly or quarterly basis, which you can either keep or reinvest back into the stock.

From a retirement perspective, many companies offer matching on a 401(k) account. Contribute as much as you can to receive the full match, which is like getting free money. 

Additionally, consider investing in a Roth or traditional IRA. A traditional IRA lets you put pre-tax money (often directly from your paycheck) into a retirement account. A Roth IRA allows you to contribute after-tax money, meaning it’ll be tax-free when you start withdrawing years down the line.

Remember, no investment is without risk (outside of a retirement or savings account at an FDIC-insured bank or U.S. Treasury bonds), so don’t invest more than you can afford to lose. 

If you’re feeling creative, you could try these unique side hustle ideas, too. Put everything you earn from them in a high-yield savings account, index fund or retirement account and you’ll be on your way to long-term growth.

The plan: Shop insurance and mortgage rates

Before you make any major car-buying decisions, compare insurance rates side-by-side to ensure you’re getting the best deal available. It’s a good idea to insurance shop every six months. Depending on where you live and how frequently you drive, a telematics policy could be the best option for you, saving you hundreds of dollars throughout the year.  

With a new home, work with a lender to make sure you understand all your available mortgage options and what that process looks like. There are fixed-rate mortgages (usually between 15 and 30 years) and adjustable-rate mortgages (ARMs). The right one for you depends on a number of factors, from your available savings to your preference for stable versus unstable (though potentially lower) monthly payments.

This applies to if you currently own a home, too. The low interest rate of the housing market makes refinancing an intriguing option, but be sure you understand everything that goes into a home refinance before making a decision.